No, this verb doesn't involve using your nose. When you smelt metal, you remove it from ore, or rock. Heat is required to smelt iron.
Smelt looks a lot like melt and that is an easy way to remember what this process involves. To smelt metal, you have to heat the rock, which is called ore, until the metal inside it melts or liquefies. That metal is the part that has use and value, but hard work is needed to extract it.